President Joe Biden has signed an executive order that will restrict some US investments in China’s technology sector, citing national security threats. The order, which will take effect next year, targets three areas: semiconductors and microelectronics, quantum information technologies, and certain artificial intelligence systems. The move is seen as a sign of growing tensions between the world’s two largest economies over technology and trade.
US seeks to protect sensitive technologies from China
The executive order authorizes the US Treasury secretary to prohibit or limit US investments in Chinese entities that are involved in developing or producing software or tools for designing or manufacturing semiconductors and microelectronics, quantum information technologies, and certain artificial intelligence systems. These are considered sensitive technologies that are critical to the US military, intelligence, surveillance, or cyber-enabled capabilities.
Biden said in a letter to Congress that he was declaring a national emergency to deal with the threat of advancement by countries like China “in sensitive technologies and products critical to the military, intelligence, surveillance, or cyber-enabled capabilities”. He added that the order was intended to address “the most acute” national security risks and not to separate the two countries’ highly interdependent economies.
The order applies to private equity, venture capital, joint venture, and greenfield investments. Most investments captured by the order will require the government to be notified about them. Some transactions will be prohibited. The Treasury said it anticipates exempting “certain transactions, including potentially those in publicly traded instruments and intracompany transfers from US parents to subsidiaries”.
China reacts strongly to the US move
China has expressed its strong dissatisfaction and opposition to the US move, saying that it violates the principles of market economy and fair competition. China’s Commerce Ministry said in a statement that it was “gravely concerned” about the order and that it reserves the right to take measures. It said that the order affects the normal operation and decision-making of enterprises and undermines the international economic and trade order.
China’s Foreign Ministry said that it had lodged solemn representations with the US and urged it to respect Biden’s promise of no intention to decouple from China or obstruct its economic development. It said that the US should refrain from “artificially hindering global economic and trade exchanges and cooperation, or set up obstacles for the recovery of the world economy”.
US lawmakers welcome the order but call for more action
The executive order was welcomed by some US lawmakers who have been pushing for tougher measures against China’s technological ambitions. Senate Democratic leader Chuck Schumer praised Biden’s order, saying: “For too long, American money has helped fuel the Chinese military’s rise. Today the United States is taking a strategic first step to ensure American investment does not go to fund Chinese military advancement.” He said that Congress must enshrine the restrictions in law and refine them.
However, some Republicans said that the order did not go far enough and failed to include existing technology investments as well as sectors like biotechnology and energy. House Foreign Affairs Committee chairman Michael McCaul said that he appreciated the move to restrict new outbound investments in China but was concerned about “the failure to include existing technology investments as well as sectors like biotechnology and energy”.
The executive order is part of Biden’s broader strategy to counter China’s rise as a global competitor and rival. The US has also been rallying its allies and partners to form a united front against China on issues such as human rights, trade practices, cybersecurity, and regional security.